Opinion
Docket No. 012579-2011 Docket No. 014441-2012 Docket No. 012574-2011 Docket No. 014448-2012
07-20-2015
Re: Multi Management Realty, LLC v. Union Township James V. Tino Sr. and James Tino v. Union Township
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE TAX COURT COMMITTEE ON OPINIONS Jon Greer, Esq.
Greer Scocca & Lau LLC
Five Greentree Centre
525 Route 73 North, Suite 309
Marlton, New Jersey 08053
Robert F. Renaud, Esq.
Palumbo Renaud & DeAppolonio, LLC
190 North Avenue East
Cranford, New Jersey 07016
Dear Mr. Greer and Mr. Renaud:
This letter constitutes the court's opinion following trial of appeals filed by plaintiffs, Multi Management Realty, LLC ("Multi Management") and James V. Tino, Sr. and James Tino ("Tino") (Multi Management and Tino shall be collectively referred to herein as "plaintiffs"). Plaintiffs challenged the 2011 and 2012 tax year assessments on their improved property located in the Township of Union ("defendant"), County of Union and State of New Jersey.
For the reasons stated more fully below, the court affirms the 2011 and 2012 tax year assessments.
I. Procedural History and Findings of Fact
Multi Management is the owner of the real property and improvements located at 2675 Route 22 West, Union, New Jersey. The property is identified on the tax map of the Township of Union as Block 3402, Lot 6 (the "Multi Management property"). For the 2011 and 2012 tax years, the Multi Management property was assessed as follows:
| Land: | $340,400 |
| Improvement: | $592,000 |
|---|---|
| Total: | $932,400 |
Tino is the owner of the adjacent real property and improvements located at 2685 Route 22 West, Union, New Jersey. The property is identified on the tax map of the Township of Union as Block 3402, Lot 5 (the "Tino property"). For the 2011 and 2012 tax years, the Tino property was assessed as follows:
| Land: | $139,200 |
| Improvement: | $230,400 |
|---|---|
| Total: | $369,600 |
The Chapter 123 ratio and common level range for Union Township was as follows:
| 2011 | 2012 | |
|---|---|---|
| Average Ratio | 14.87% | 15.38% |
| Lower Limit | 12.64% | 13.07% |
| Upper Limit | 17.10% | 17.69% |
When the average ratio is applied to Multi Management property's assessment, it has an implied equalized value of $6,270,342.90 for the 2011 tax year and $6,062,418.70 for the 2012 tax year. When the average ratio is applied to Tino property's assessment, it has an implied equalized value of $2,485,541.30 for the 2011 tax year and $2,403,120.90 for the 2012 tax year.
a. The Multi Management property
The Multi Management property is an irregularly-shaped, rectangular 3.04 acre lot, containing 225 feet of frontage along the westbound side of Route 22 in Union Township. The site is serviced by public and private utilities including electric, natural gas, water and sewer.
The Multi Management property is improved with a one and part two-story steel frame and masonry 33,727 square foot Chevrolet automobile dealership. The property was acquired by Multi Management from Argonaut Holdings, Inc. under deed dated May 27, 2010 for a reported consideration of $3,400,000. The property is located in the I Industrial District with permitted uses including manufacturing, research laboratories, car wash facilities and repair garages. Conditional uses include retail stores for the sale of goods and services. The use of the property as an automobile dealership precedes adoption of the current municipal zoning ordinance and therefore, is a pre-existing, legally permitted non-conforming use. An area in the rear of the Multi Management property is located in designated Flood Zone AE, with the balance being located in Flood Zone X.
In plaintiffs' expert's opinion, the building contains 33,623 gross square feet.
Prior to the sale, Multi Management Realty, LLC leased the property from Argonaut Holdings, Inc., a General Motors company. Contemporaneous with the sale, Multi Management Realty, LLC leased the property back to Argonaut Holdings, Inc., who leases the property to Multi Chevrolet, Inc., the automobile dealership operator.
In plaintiffs' expert's opinion, the Multi Management property was entirely located within Flood Zone X, denoting an area of minimal flooding risk.
The site improvements were initially constructed in 1975 and were renovated in 2013, subsequent to the valuation dates involved in these matters. The building contains a concrete slab foundation, built on grade, with concrete block exterior walls. An Exterior Insulation and Finishing System (EIFS) is applied to the front and partially along the side concrete block walls. The automobile dealership includes approximately 11,082 square feet of finished showroom and sales office area, 21,005 square feet of service area and service department offices and 1,640 square feet of second floor administrative offices. The showroom area consists of eight sales offices, three semi-partitioned offices, a customer waiting area, two employee lunch/break rooms, and four restrooms. The second floor area contains two open administrative offices and a storage room. The service department consists of six offices, a service manager area, cashier, parts storage area, twenty service bay areas, an employee lunch room, a locker room and restroom. The site is further improved with approximately 212 lined and unlined parking spots.
In plaintiffs' expert's opinion, the building contains 15,943 square feet of finished showroom area and 17,680 square feet of service area.
In plaintiffs' expert's opinion, the site has the capacity for 189 vehicles.
b. The Tino property
The Tino property is a rectangular shaped 0.90 acre lot, containing 225 feet of frontage along the westbound side of Route 22 in Union Township. There has been no reported sale of the Tino property since 1996. The site is improved with all available public and private utilities including electric, natural gas, water and sewer.
The Tino property is improved with a one-story steel frame and masonry 10,625 square foot Subaru automobile dealership. The site improvements were initially constructed in 1976 for use as a retail store and in 1996 were converted to an automobile dealership following a complete renovation. The improvements were renovated and modernized again in 2009. The property is located in the BC - Business Retail zoning district with permitted uses including office buildings, retail stores, restaurants, public garages, banks and financial institutions. Thus, the use of the property as an automobile dealership is a legally permitted and conforming use in the district. The Tino property is located in designated Flood Zone X, denoting an area of minimal flooding risk.
In plaintiffs' expert's opinion, the building contains 11,050 gross square feet.
The building contains a concrete slab foundation, built on grade, with concrete block exterior walls. An Exterior Insulation and Finishing System (EIFS) is applied to the front and partially along the side concrete block walls. The automobile dealership includes approximately 3,600 square feet of finished showroom and sales office area and 7,025 square feet of service area and service department offices. In the showroom area there is one private office, several semi-partitioned office areas, a partitioned customer waiting area with a refreshment counter, a business office, a service department office, a parts-inventory area and counter, a warehouse area, an employee break-room and two restrooms. The service department contains eight service bay areas. The site is further improved with approximately 40 lined and unlined parking spots.
In plaintiffs' expert's opinion, the building contains 3,000 square feet of finished showroom area, 2,050 square feet of parts area and 6,000 square feet of service area.
In plaintiffs' expert's opinion, the site has the capacity for 70 vehicles. --------
The Multi Management and Tino properties abut one another along the easterly boundary of the Tino property and a portion of the westerly boundary of the Multi Management property. (The Multi Management and Tino properties shall be collectively referred to herein as the "subject properties.")
Plaintiffs' filed petitions of appeal with the Union County Board of Taxation (the "Board) challenging the 2011 and 2012 tax year assessments on the subject properties. The Board entered judgments for the 2011 and 2012 tax years dismissing plaintiffs' petitions of appeal without prejudice (the "Judgments"). Plaintiffs' filed timely Complaints with the Tax Court contesting the Board's Judgments. The defendant did not file Counterclaims. The matters were tried to conclusion on March 17, 2015 and March 18, 2015.
At trial, plaintiffs' and defendant each offered the testimony of a State of New Jersey certified general real estate appraiser, who were accepted by the court, without objection, as experts in property valuation. Each expert prepared an appraisal report expressing an opinion of the true market value of the subject properties as of the October 1, 2010 and October 1, 2011 valuation dates. The experts valued the subject properties utilizing the cost approach and sales comparison approach.
The experts offered their opinions that the Multi Management property and Tino property had a true market value as follows:
| As of 10/1/2010 valuation date | As of 10/1/2011 valuation date | |||
| Plaintiffs'expert | Defendant'sexpert | Plaintiffs'expert | Defendant'sexpert | |
| Multi Managementproperty | $3,700,000 | $6,575,000 | $4,035,000 | $6,575,000 |
| Tino property | $1,435,000 | $2,285,000 | $1,490,000 | $2,285,000 |
II. Conclusions of Law
a. Presumption of Validity
"Original assessments and judgments of county boards of taxation are entitled to a presumption of validity." MSGW Real Estate Fund, LLC v. Borough of Mountain Lakes, 18 N.J. Tax 364, 373 (Tax 1998). "Based on this presumption, the appealing taxpayer has the burden of proving that the assessment is erroneous." Pantasote Co. v. City of Passaic, 100 N.J. 408, 413 (1985) (citing Riverview Gardens v. North Arlington Borough, 9 N.J. 167, 174 (1952)). "The presumption of correctness...stands, until sufficient competent evidence to the contrary is adduced." Little Egg Harbor Township v. Bonsangue, 316 N.J. Super. 271, 285-86 (App. Div. 1998). A taxpayer can only rebut the presumption by introducing "cogent evidence" of true value. That is, evidence "definite, positive and certain in quality and quantity to overcome the presumption." Aetna Life Ins. Co. v. Newark City, 10 N.J. 99, 105 (1952). Thus, at the close of plaintiff's proofs, the court must be presented with evidence which raises a "debatable question as to the validity of the assessment." MSGW Real Estate Fund, LLC, supra, 18 N.J. Tax at 376.
In evaluating whether the evidence presented meets the "cogent evidence" standard, the court "must accept such evidence as true and accord the plaintiff all legitimate inferences which can be deduced from the evidence." Id. at 376 (citing Brill v. Guardian Life Insurance Co. of America, 142 N.J. 520 (1995)). The evidence presented, when viewed under the Brill standard "must be 'sufficient to determine the value of the property under appeal, thereby establishing the existence of a debatable question as to the correctness of the assessment.'" West Colonial Enters, LLC v. City of East Orange, 20 N.J. Tax 576, 579 (Tax 2003)(quoting Lenal Properties, Inc. v. City of Jersey City, 18 N.J. Tax 405, 408 (Tax 1999), aff'd, 18 N.J. Tax 658 (App. Div. 2000), certif. denied, 165 N.J. 488 (2000)). "Only after the presumption is overcome with sufficient evidence...must the court 'appraise the testimony, make a determination of true value and fix the assessment.'" Greenblatt v. Englewood City, 26 N.J. Tax 41, 52 (Tax 2011)(quoting Rodwood Gardens, Inc. v. City of Summit, 188 N.J. Super. 34, 38-39 (App. Div. 1982)).
At the close of plaintiffs' proofs, defendant moved to dismiss the matters under R. 4:37-2(b), arguing that plaintiffs' failed to overcome the presumption of validity. The court denied defendant's motion and placed a statement of reasons on the record.
However, concluding that the presumption of validity has been overcome, does not equate to a finding by the court that the assessment is erroneous. Once the presumption has been overcome, "the court must then turn to a consideration of the evidence adduced on behalf of both parties and conclude the matter based on a fair preponderance of the evidence." Ford Motor Co. v. Edison Township, 127 N.J. 290, 312 (1992). The court must be mindful that "although there may have been enough evidence [presented] to overcome the presumption of correctness at the close of plaintiff's case-in-chief, the burden of proof remain[s] on the taxpayer...to demonstrate that the judgment under review was incorrect." Id. at 314-15 (citing Pantasote Co., supra, 100 N.J. at 413).
a. Highest and Best Use
The experts' opinions differed on the highest and best use of the Multi Management property, as vacant. Plaintiff's expert concluded that the Multi Management property's highest and best use, as vacant, was for retail development and defendant's expert concluded that it was for commercial development. However, as improved, both experts concluded the highest and best use of the Multi Management property is its current use as an automobile dealership, because the site can accommodate its present use as an automobile dealership; its use is permitted under applicable zoning laws; it produces a positive return and thus, is financially feasible; and it is maximally productive, as it will continue to produce a sustained rate of return in the marketplace.
Similarly, the experts' opinions diverged on the highest and best use of the Tino property, as vacant. Plaintiffs' expert concluded that the Tino property's highest and best use, as vacant, was for retail development and defendant's expert concluded that it was for commercial development. As improved, plaintiffs' expert concluded that the highest and best use of the Tino property on a "short term" or "temporary" basis is its current use as an automobile dealership. In plaintiffs' expert's opinion, the Tino property is grossly undersized for use as an automobile dealership and "in the long term, the highest and best use of the property would be to convert it back to either a single tenant or multi-tenant retail building." Conversely, defendant's expert concluded that as improved, the highest and best use of the Tino property is its current use as an automobile dealership. In defendant's expert's opinion, the current use of the property is legally permitted under applicable zoning laws; since improvements currently exist on the site, the use is physically possible and financially feasible; and no other use warrants demolition and removal of the existing improvements in favor of new commercial development.
The court finds that the highest and best use, as vacant, for the Multi Management property is commercial development and for the Tino property is retail development. Moreover, the highest and best use of the subject properties, as improved, are their current uses.
b. Methodology
"There is no single determinative approach to the valuation of real property." 125 Monitor Street LLC v. City of Jersey City, 21 N.J. Tax 232, 237-238 (Tax 2004) (citing Samuel Hird & Sons, Inc. v. City of Garfield, 87 N.J. Super. 65, 72 (App. Div. 1965)); ITT Continental Baking Co. v. East Brunswick Township, 1 N.J. Tax 244, 251 (Tax 1980). "There are three traditional appraisal methods utilized to predict what a willing buyer would pay a willing seller on a given date, applicable to different types of properties: the comparable sales method, capitalization of income and cost." Brown v. Borough of Glen Rock, 19 N.J. Tax 366, 376 (App. Div. 2001) (citing Appraisal Institute, The Appraisal of Real Estate 81 (11th ed. 1996), certif. denied, 168 N.J. 291 (2001)). The "decision as to which valuation approach should predominate depends upon the facts of the particular case and the reaction to these facts by the experts." Coca-Cola Bottling Co. of New York v. Neptune Township, 8 N.J. Tax 169, 176 (Tax 1986) (citing New Brunswick v. Tax Appeals Div., 39 N.J. 537 (1963)). See also WCI-Westinghouse, Inc. v. Edison Township, 7 N.J. Tax, 610, 619 (Tax 1985), aff'd, 9 N.J. Tax 86 (App. Div. 1986). However, when the proofs submitted in support of one approach overshadow those submitted in any other approach, the court may conclude which approach should prevail. ITT Continental Baking Co., supra, 1 N.J. Tax 244; Pennwalt Corp. v. Holmdel Township, 4 N.J. Tax 51 (Tax 1982).
Both experts employed the cost approach and the sales comparison approach to derive an opinion of value for the subject properties, as of the applicable valuation dates. Both experts attributed the greatest degree of weight to the sales comparison approach and used the cost approach as additional support for their concluded values.
The cost approach derives a value of property "by adding the estimated value of the land to the current costs of constructing a reproduction or replacement for the improvements and then subtracting the amount of depreciation (i.e., deterioration and obsolescence) in the structures from all causes." Appraisal Institute, The Appraisal of Real Estate, 47 (14th ed. 2013). The cost approach is an effective method of valuation when the property being appraised is new or when the site improvements are unique and designed for a special-purpose. Id. at 45. Moreover, the cost approach is often the only reliable method of valuation of "special purpose or unique structures for which there is no market." Dworman v. Borough of Tinton Falls, 1 N.J. Tax 445, 452 (Tax 1980). However, when site improvements are "considerably older or do not represent the highest and best use of the land as though vacant, the physical deterioration, functional obsolescence, and external obsolescence may be more difficult to estimate", rendering the cost approach a much less reliable indicator of value. Appraisal Institute, The Appraisal of Real Estate, 567-568 (14th ed. 2013). Thus, the cost approach can be impractical, in attempting to value properties "with older improvements that suffer substantial depreciation, which can be difficult to estimate." Id. at 45.
Nonetheless, a property may be disposed to valuation under the cost approach if its improvements contain defining physical features, qualities and attributes that distinguish it from other property and hence, constitutes special-purpose property. A special-purpose property is the type of property that "'cannot be converted to other uses without large capital investment,' such as a public museum, a church, or a highly-specialized production facility like a brewery." Ford Motor Co., supra, 127 N.J. at 299 (citing Sunshine Biscuits, Inc. v. Borough of Sayreville, 4 N.J. Tax 486, 495 (Tax 1982)); General Motors Corp. v. City of Linden, 22 N.J. Tax 95, 127 (Tax 2005). Special-purpose property possesses the following characteristics: "(1) unique and specially built for the purpose for which they are used, (2) without a market or comparable sales, (3) unlikely to be converted without substantial economic expenditure, and (4) reasonably expected to be replaced or reproduced if destroyed." TD Bank v. City of Hackensack, 2015 N.J. Tax LEXIS 8, 11 (Tax April 22, 2015). Due to the lack of comparable market transactions, the cost approach can often be the only efficient means for deriving a value for special-purpose property. Glenpointe Associates v. Township of Teaneck, 10 N.J. Tax 380, 388 (Tax 1989), aff'd, 12 N.J. Tax 118 (App. Div. 1990) (citing Anaconda Co. v. City of Perth Amboy, 157 N.J. Super. 42 (App. Div. 1978), vacated and remanded on other grounds, 81 N.J. 55 (1979)).
Conversely, the sales comparison or comparative approach is predicated upon an evaluation of market transactions involving the recent sale of similar properties. This approach involves a "comparative analysis of properties" and requires the expert to focus on the "similarities and differences that affect value...which may include variations in property rights, financing, terms, market conditions and physical characteristics." Appraisal Institute, The Appraisal of Real Estate, 378 (14th ed. 2013). "When data is available, this [approach] is the most straightforward and simple way to explain and support an opinion of market value." Greenblatt v. Englewood City, supra, 26 N.J. Tax at 53 (citing Appraisal Institute, The Appraisal of Real Estate 300 (13th ed. 2008)). A "major premise of the sales comparison approach is that an opinion of the market value of a property can be supported by studying the market's reaction to comparable and competitive properties." Appraisal Institute, The Appraisal of Real Estate, 377 (14th ed. 2013). Thus, the usefulness of the sales comparison approach is dependent upon the sufficiency of the data on recent market transactions.
Here, the testimony proffered reveals the subject properties are both steel frame and masonry structures, approximately 38 years of age, and were recently renovated. Conflicting evidence was presented regarding the condition and effective age of the improvements and their remaining economic lives, key factors in estimating depreciation, an integral component of the cost approach. Moreover, in the opinion of plaintiffs' expert, the subject properties current use does not represent the highest and best use of the land, as though vacant. Furthermore, although evidence was presented that the subject properties possess physical and design features making them more suitable to the property owner, they are "not truly unique." Sunshine Biscuits, Inc., supra, 4 N.J. Tax at 495. The testimony offered by both plaintiffs' and defendant's expert does not reveal any particularly distinctive physical characteristics or individualized construction application that restricts the utility of the site improvements for other uses. No testimony was presented during trial signaling that the site improvements have a limited conversion potential. Neither party demonstrated that significant expenditures would be required or that it is economically impracticable for the subject properties to be converted to another use. To the contrary, both experts acknowledged the Tino property was initially erected for use as a retail store and was converted to an automobile dealership. No evidence was presented to the court that should the subject properties be destroyed that it would be reasonable to expect them to be rebuilt as automobile dealerships. In the opinion of plaintiffs' expert, the Tino property is grossly undersized for use as an automobile dealership and "does not meet the standards for a modern day dealership and in the long term, the highest and best use of the property would be to convert it back to either a single tenant or multi-tenant retail building." Notably, the appraisal reports and testimony of both experts revealed the availability of a significant number of comparative market transactions involving both current and former automobile dealerships. No evidence was adduced during trial that the comparable automobile dealership sales transactions were so insufficiently separate in time, place and physical appearance to the subject properties to render the comparative approach meaningless. Furthermore, plaintiffs' expert conceded that the cost approach is "more problematic" and a less reliable indicator of value for older structures, like the subject properties. He acknowledged that "the more depreciation present, the less reliable" the cost approach is, while a "newer building...would be a better indicator (sic) of the cost approach than an older building that suffers from a lot of depreciation." Additionally, cross-examination revealed that prior appraisal reports for the subject properties prepared by plaintiffs' expert provided that "the cost approach was considered but not utilized within this report. due to the improvements being over 38 years old and showing signs of incurable physical depreciation, measuring this depreciation is speculative at best, due to this limitation to the cost approach, this approach was omitted."
The decisions of the court "must be based on the evidence before it and the data that are properly at its disposal." F.M.C. Stores Co. v. Borough of Morris Plains, 100 N.J. 418, 430 (1985) (citing Pantasote, supra, 100 N.J. at 413). However, the court is "not obliged to accept the opinions of experts", Glenpointe Assocs., supra, 10 N.J. Tax at 396, and when presented with contrasting valuation approaches, it must evaluate and weigh the proofs submitted and conclude which approach should predominate. ITT Continental Baking Co., supra, 1 N.J. Tax 244 (Tax 1980); Lenal Properties, Inc. v. City of Jersey City, 18 N.J. Tax 405, 412 (Tax 1999), aff'd, 18 N.J. Tax. 658 (App. Div.), certif. denied, 165 N.J. 488 (2000) (holding that when a court is presented with "two valuation approaches...the court must reconcile the approaches.").
Here, based upon the evidence presented, the court concludes the site improvements are dated thus, estimating the physical deterioration, functional obsolescence, and external obsolescence are problematic. Additionally, no evidence was presented that the subject properties are distinctive and specially built for the purpose for which they are used; are without a market or lack comparable sales; are unlikely to be converted without substantial economic expenditures; and could reasonably expected to be replaced or reproduced if destroyed. Thus, the court finds the subject properties are not unique or special-purpose properties. The court therefore concludes that the cost approach is not a reliable indicator of value for the subject properties. Moreover, due to the sufficiency of market transaction data involving the recent sale of automobile dealership properties, the sales comparison or comparative approach should be the prevailing approach for valuing the subject properties.
c. Sales Comparison Approach
Both experts provided the court with sales of current and former automobile dealerships which they deemed comparable to the subject properties. In engaging in a sales comparison approach, a substantial similarly must exist between the subject property and the comparable properties. "Evidence of comparable sales is effective in determining value only where there is a substantial similarity between the properties." Venino v. Borough of Carlstadt, 1 N.J. Tax 172, 175 (Tax 1980), aff'd o.b. 4 N.J. Tax 528 (App. Div. 1981). By definition, comparability does not require properties to be identical, "differences between a comparable property and the subject property are anticipated. They are dealt with by adjustments recognizing and explaining these differences, and then relating the two properties to each other in a meaningful way so that an estimate of the value of one can be determined from the value of the other." U.S. Life Realty Corp. v. Jackson Township, 9 N.J. Tax 66, 72 (Tax 1987). Thus, a fundamental predicate of the comparative approach requires evidence "be based on 'sound theory and objective data', rather than on mere wishful thinking." MSGW Real Estate Fund, supra, 18 N.J. Tax at 376 (quoting FMC Corp. v. Unmack, 92 N.Y. 2d 179, 188 (1998)). An appraiser must establish appropriate "elements of comparison for a given appraisal through market research and support those conclusions with market evidence." Appraisal Institute, The Appraisal of Real Estate 390 (14th ed. 2013). Hence, the probative value of the comparable analysis hinges upon the similarities which can be drawn and the objective market data utilized to support any adjustments thereto.
1. Plaintiffs' expert's analysis
Plaintiffs' expert relied on the sale of five current or former automobile dealerships located in Union County, Bergen County and Middlesex County.
Comparable improved sale one, was the sale of the Multi Management property from Argonaut Holdings, Inc. ("Argonaut") to Multi Management on May 27, 2010 for a reported consideration of $3,400,000. This transaction involved the sale of the Multi Management property from Argonaut to Multi Management, and the simultaneous leaseback of the property by Multi Management to Argonaut. Although this sale was not exposed to the market, plaintiffs' expert opined that this sale was "fully negotiated between the parties" and was an "arm's-length" and "market rate transaction" because he confirmed with plaintiff, James Tino, that the property's sale was negotiated over a period of several months.
Comparable improved sale two, located at 2058 Route 130, South Brunswick, New Jersey sold on July 13, 2009, for a price of $3,200,000. This comparable was sold vacant and was the site of a former Chrysler automobile dealership. The property consisted of a 58,644 square foot one-story building situated on a 7.48 acre lot. This comparable was only analyzed by plaintiffs' expert for the 2011 tax year.
Comparable improved sale three, located at 194 Route 17, Paramus, New Jersey sold on April 3, 2009, for a price of $6,900,000. This comparable is the site of an existing Chevrolet automobile dealership. Similar to comparable improved sale one, this property was sold by the property's owner/lessor, Argonaut, to its tenant, 194 Realty, LLC, and thus, was not exposed to the market. The property consisted of a 55,200 square foot two-story building situated on a 3.22 acre lot.
Comparable improved sale four, located at 40-42 River Road, Summit, New Jersey sold on July 1, 2011, for a price of $2,700,000. This comparable was sold vacant and was the site of a former Chevrolet automobile dealership. The property consisted of a 21,997 square foot two-story building situated on a 1.33 acre lot.
Comparable improved sale five, located at 2285 Route 22 West, Union, New Jersey sold on September 30, 2011, for a price of $3,482,360. This comparable is the site of an existing Honda automobile dealership. This comparable sale was sold by the property's owner/lessor to the tenant and thus, was not exposed to the market. The property consisted of a 25,000 square foot one-story building situated on a 4.097 acre lot. This comparable was only analyzed by plaintiffs' expert for the 2012 tax year.
Plaintiffs' expert made adjustments to the comparable improved sales for location, improvement size, land-to-building ratio and finished area. In plaintiffs' expert opinion, although location, improvement size, land-to-building ratio and finished area all affect the value of an automobile dealership, the location, including its "traffic and exposure are one of the most important factors." Thus, plaintiffs' expert employed traffic count studies as the basis for his location adjustments. The resulting range of adjusted sales prices, per square foot, for the Multi Management property was $60.02 to $131.35, with a concluded value of $110.00 per square foot, for the 2011 tax year; and $101.12 to $131.25, with a concluded value of $120.00 per square foot, for the 2012 tax year. The resulting range of adjusted sales prices, per square foot, for the Tino property was $62.75 to $137.50, with a concluded value of $130.00 per square foot, for the 2011 tax year; and $116.29 to $139.29, with a concluded value of $135.00 per square foot, for the 2012 tax year.
2. Defendant's expert's analysis
Defendant's expert relied upon the sale of four current or former automobile dealerships located in Essex County, Passaic County and Bergen County.
Comparable improved sale one, located at 1170 Bloomfield Avenue, West Caldwell, New Jersey sold on December 4, 2007, for a price of $6,700,000. This comparable was occupied and the site of an existing Honda automobile dealership. The property consisted of two one-story buildings, totaling 26,783 square feet, situated on a 4.40 acre lot.
Comparable improved sale two, located at 215 River Drive, Passaic, New Jersey sold on December 20, 2007, for a price of $6,000,000. This comparable was occupied and the site of an existing Honda automobile dealership. The property consisted of a 20,977 square foot one-story building situated on a 4.531 acre lot.
Comparable improved sale three, located at 925 Route 17, Ramsey, New Jersey sold on August 12, 2008, for a price of $5,700,000. This comparable was vacant at the time of sale and was the site of a former automobile dealership and was being utilized as a used vehicle showroom. The property consisted of an 18,000 square foot one-story building situated on a 2.40 acre lot.
Comparable improved sale four, located at 343 Route 10, Livingston, New Jersey sold on August 31, 2010, for a price of $4,375,000. This comparable was vacant at the time of sale and was the site of a former Saturn automobile dealership. The property consisted of a 16,165 square foot one-story building situated on a 2.713 acre lot. Subsequent to the acquisition of this comparable improved sale it was converted for use as retail stores.
Defendant's expert made adjustments to the comparable improved sales for time, location, lot size, improvement size and condition. The resulting range of adjusted sales prices, per square foot, for the Multi Management property was $170.10 to $205.94, with a concluded value of $195.00 per square foot, for the 2011 and 2012 tax years. The resulting range of adjusted sales prices, per square foot, for the Tino property was $180.11 to $230.04, with a concluded value of $215.00 per square foot, for the 2011 and 2012 tax years.
3. The court's analysis of the experts' value conclusions
At the outset, the court points out that plaintiffs' expert's credibility was materially impacted by his failure to employ accurate and up-to-date traffic count studies, and his overall lack of knowledge regarding the data and traffic count studies utilized in his reports. A common theme arose during plaintiffs' expert's testimony, that the research, data compilation and analysis was conducted by plaintiffs' expert's associate. In fact, plaintiffs' expert admitted during cross-examination that "my associate wrote most of...about 99% of it [the appraisal report]." Although this is not dispositive on the issue of plaintiffs' expert's credibility, his lack of knowledge regarding critical details of the comparable improved sale transactions and the data employed in the assembly of the appraisal report rendered his opinions unreliable.
Moreover, the adjustments employed by each expert in their comparative approach analyses suffer from deficiencies rendering their concluded opinions of value unpersuasive. Plaintiffs' expert employed land-to-building ratio adjustments without providing a sufficient comparative property analysis or the objective market data to support his adjustments. Similarly, defendant's expert did not identify the studies, surveys or objective market data upon which he relied to support his adjustments. Furthermore, the gross adjustments employed by defendant's expert to the comparable improved sales totaled 70%, 60%, 55%, 50% and 40%, thereby raising material doubts as to the similarity of several comparable improved sales to the subject properties.
As such, the court concludes that plaintiffs' and defendant's expert testimony must be accorded no weight in the determination of the true market value for the subject properties.
a. Traffic count studies
In plaintiffs' expert opinion, "traffic and exposure are one of the most important factors" affecting the value of an automobile dealership. Thus, the traffic count studies employed by him were a central part of, and formed the basis for, his location adjustments. However, the traffic count studies upon which plaintiffs' expert relied were performed in 1998, approximately 13 years prior to the dates of valuation. The only explanation offered by plaintiffs' expert for this discrepancy was that he "didn't realize they were that old." Hence, plaintiff's expert's location adjustments were premised upon inaccurate and out-of-date information.
Additionally, plaintiffs' expert was admittedly unaware whether the traffic counts studies, upon which he relied, were conducted on a weekday, weekend or constituted an average daily traffic count. Plaintiffs' expert was unable to discern if the traffic counts were based on one direction of travel or were rates of traffic for both directions. The expert was further unable to identify if the traffic counts were for a divided or undivided roadway. Plaintiffs' expert also omitted several traffic count studies from his report and work file, thereby depriving the court of the ability to review the accuracy of the information upon which plaintiffs' expert premised his conclusions.
b. Sale as reliable indicator of market value
In the court's journey to determine the true market value of real property, the focus of the inquiry is "the fair value of the property, the price a willing buyer would pay a willing seller." New Brunswick v. State of N.J. Div. of Tax Appeals, 39 N.J. 537, 543 (1963). The term market value has been defined as:
the most probable price, as of a specified date, in cash or in terms equivalent to cash, or in other precisely revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress.Appraisal Institute, The Appraisal of Real Estate 58 (14th ed. 2013). Thus, although the sale of property is indicative of an exchange of consideration between parties, it may not be dispositive on the issue of market value. "[T]here may be instances when the sale price may not reflect true market value. In such instances it is for the court to appraise the circumstances surrounding a sale to determine if there were special factors which affected the sale price without affecting the true value." Glen Wall Associates v. Township of Wall, 99 N.J. 265, 282 (1985). The sale of a property is a reliable indicator of fair market value when the following criteria have been met:
1) buyer and seller are typically motivated and neither is under duress;Venture 17, LLC v. Borough of Hasbrouck Heights, 27 N.J. Tax 108, 126 (Tax 2013) (citing Hull Junction Holding Corp. v. Borough of Princeton, 16 N.J. Tax 68, 94 (Tax 1996)). Hence, it is incumbent upon an appraiser employing the comparative approach to closely examine, evaluate and scrutinize the transaction. An appraiser must conduct a thorough investigation of the transaction to ascertain if it was affected by special factors, agreements or considerations.
2) buyer and seller are well informed or well advised and are acting prudently, knowledgeably and in their respective self-interests;
3) the property has been reasonably exposed to an open, relevant and competitive market for a reasonable period of time;
4) the purchase price is paid in cash or its equivalent; and
5) the purchase price is unaffected by special or creative financing or by other special factors, agreements or considerations.
Here, plaintiffs' expert relied on the sale of the Multi Management property as evidence of its true market value. Although the Multi Management property was not exposed to the open market, in plaintiffs' expert's opinion, it was an "arm's-length" and "market rate transaction" because he confirmed with plaintiff, James Tino, the sale was "fully negotiated between the parties." However, the court is not convinced that plaintiff's self-serving statements rise to the level of credible evidence that the transaction was not impacted or affected by special considerations and reflected true market value. Although plaintiffs' expert acknowledged the importance in reviewing the former lease agreement between Multi Management and Argonaut, he conceded that he possessed only an amendment to the lease agreement and did not review the underlying lease agreement. Thus, plaintiffs' expert was uninformed if the lease terms were more favorable to Multi Management or Argonaut, and was unable to state if the lease afforded Multi Management an option to purchase the property and upon what terms. More importantly, plaintiffs' expert conceded that he did not consider, analyze or evaluate the effect the sale and contemporaneous leaseback of the Multi Management property had on the sales price.
Similarly, although both comparable improved sale three and five comprised the sale of property between an owner/landlord and its tenant, and were not exposed to the open market, in plaintiffs' expert's opinion, these sales were reliable evidence of true market value. However, the court is likewise not convinced that comparable improved sale three and five represent true market value. Plaintiffs' expert acknowledged that he did not review or examine the existing lease agreement for comparable improved sale three. He further acknowledged that he possessed only limited information on the ground lease term and rental obligations due with respect to comparable improved sale five. Thus, plaintiffs' expert was unfamiliar with basic lease terms including, the commencement and expiration dates, whether the rental terms were more or less favorable to the owner/lessor or tenant/purchaser, or if the lease agreement afforded the tenant/purchaser the option to purchase the property at a fixed price. He further conceded that he was unaware if the seller, Argonaut, subsidized a portion of comparable improved sale three's purchase price by providing financial incentives to the tenant/purchaser/automobile dealer. Plaintiffs' expert provided no insight into the impact the sale and contemporaneous leaseback of comparable improved sale three had on its sales price. Plaintiffs' expert was also unable to offer any testimony regarding the effect comparable improved five's ground lease had on its sales price. The expert acknowledged that these factors could have affected the sales prices of comparable improved sale three and five, however he did not consider them in his analysis. Simply stated, plaintiffs' expert did not provide sufficient evidence that the sale of the Multi Management property and comparative improved sales three and five were unaffected by special factors, agreements or consideration to render them market rate transactions. Thus, the court is unable to conclude that these sales represent true market value.
d. Adjustments
An individual possessing particular knowledge, skill, experience, training or education, may be qualified by the court, under N.J.R.E. 702, as an expert and therefore permitted to render opinion testimony. See Rosenberg v. Tavorath, 352 N.J. Super. 385 (App. Div. 2002). Although the facts or data relied upon by an expert need not be admissible, the expert's testimony must be rooted in facts, science, data or the opinions of other experts. N.J.R.E. 703. Thus, "[t]he rule requires an expert 'to give the why and wherefore' of his or her opinion, rather than a mere conclusion." Rosenberg v. Tavorath, supra, 352 N.J. Super. at 401 (quoting Jimenez v. GNOC, Corp., 286 N.J. Super. 533, 540 (App. Div.), certif. denied, 145 N.J. 374 (1996)). When the opinion of an expert is offered "[w]ithout explanation as to the basis, the opinion of the expert is entitled to little weight..." Dworman, supra, 1 N.J. Tax at 458. The value, significance and "probative utility of an expert's opinion stands or falls on the facts and reasoning offered in its support." Little Egg Harbor Twp. v. Bonsangue, 316 N.J. Super. 271, 284 (App. Div. 1998). Similarly, the weight accorded expert testimony relative to comparative adjustments "depends upon the facts and reasoning which form the basis of the opinion. An expert's conclusion can rise no higher than the data providing the foundation." Inmar Associates v. Edison Township, 2 N.J. Tax 59, 66 (Tax 1980) (citing Passaic v. Gera Mills, 55 N.J. Super. 73 (App. Div. 1959), certif. denied, 30 N.J. 153 (1959)).
The lot sizes of the comparable improved sale transactions, relied on by plaintiffs' expert, were significantly disparate to the subject properties. However, plaintiffs' expert elected not to make lot size adjustments and instead, employed land-to-building ratio adjustments to account for the differences. Land-to-building ratios are an important factor in analyzing the comparability of properties and can substantively contribute to "a site's appeal and ability to support specific uses." Appraisal Institute, The Appraisal of Real Estate, 209 (14th ed. 2013). Thus, plaintiffs' expert's opinion, that differences in land-to-building ratios warrant consideration is not unreasonable. However, plaintiffs' expert's failure to provide adequate market support and data for those adjustments renders them untenable. Other than plaintiffs' expert's conclusions that automobile dealerships with greater land-to-building ratios are superior to automobile dealerships with smaller land-to-building ratios, no testimony or evidence was adduced during trial buttressing his land-to-building ratio adjustments. The only support offered by plaintiff's expert can be found in his appraisal report, which states the following:
Properties similar to the subject require land area in excess of building area in order to provide space for parking, expansion, etc. Higher land/building ratios are more desirable in the marketplace and result in higher overall per square foot prices, assuming all other factors are equal.
Although these statements offer insight into why owners of automobile dealerships may find desirable properties with higher land-to-building ratios, they provide no foundation or support for plaintiffs' expert's land-to-building ratio adjustments.
Plaintiffs' expert provided no evidence that the comparable improved sales bore buildable and usable land areas in excess of the subject properties land areas. No evidence or testimony was presented regarding the physical features or topography of the comparable improved sale sites and whether additional real property was required to achieve their desired functional utility. No information was presented that the surplus land on the comparable improved sales were not adversely impacted by zoning restrictions, environmental factors, easements, flood hazard areas or other issues rendering them more or less suitable to support their use as an automobile dealership. When the evidentiary foundation forming the basis of an expert's adjustment is not well-defined, the court cannot be expected to deduce a value therefrom. "[T]he opinion of an expert depends upon the facts and reasoning which form the basis of the opinion. Without explanation as to the basis, the opinion of the expert is entitled to little weight in this regard." Greenblatt v. Englewood City, supra, 26 N.J. Tax at 55. Here, plaintiff's expert failed to supply the court with the requisite objective data and factual evidence to support his land-to-building adjustments, thus the court must reject those adjustments.
Likewise, defendant's expert did not present the studies, surveys or sources of objective market data, upon which he relied, to support his adjustments. Thus, the court must also reject defendant's expert's adjustments for location, market condition, and lot size, as they suffer from a lack of objective market data support.
Defendant's expert reported that his review of New Jersey Department of Transportation ("NJDOT") traffic study counts revealed the "average daily traffic count along the subject portion of Route 22 is 86,616 vehicles." Although defendant's expert employed location adjustments of positive 10% to comparable improved sales one and two, and made no location adjustments to comparable improved sales three and four, he did not provide the corresponding NJDOT traffic study counts for any of the comparable improved sales. Further, the only explanation offered by defendant's expert in support of his location adjustments were that comparable improved sale one is "not a highway location", comparable improved sale two is an "inferior location...in town location", comparable improved sale three is a "highway location similar to the subject" and comparable improved sale four is a "highway location." Defendant's expert did not proffer any market data, studies, surveys or accepted treatise to support his location adjustments. Defendant's expert's appraisal reports also provided little insight in this area. The reports state only that a "review of the sale data reveals that sales one and two are situated along interior roadways" and thus, "are considered inferior" to the subject properties. Thus, the appraisal reports also fail to offer any meaningful data, studies or surveys in support of his location adjustments.
Defendant's expert employed market condition adjustments of negative 20% to comparable improved sale one and two, and negative 15% to comparable improved sale three. Defendant's expert reasoned that comparable improved sales one, two and three took place during "a time when the market was going down", thus downward market condition adjustments were warranted. Moreover, defendant's expert's appraisal reports state the following:
it is undisputed that the real estate market for properties such as the subject has been declining since the end of 2007. It continued a downward trend until the middle to end of 2009. Thus, based on my interpretation of the sales data presented, as well as a review of published statistical information, an annual downward adjustment of ten (10%) percent to the end of 2009 has been applied...
Defendant's expert's observation that the real estate market began to decline at the end of 2007, is a generally accepted view. Moreover, defendant's expert's opinion that the downward trend continued until the middle to end of 2009, may also not constitute an unreasonable statement. However, it is the rate of decline applicable to the automobile dealership segment of the marketplace which is at issue with defendant's expert's location adjustments. Although defendant's expert's report states that he interpreted the sales data presented, no testimony was elicited during trial, nor was any insight provided, into his "interpretation of the sales data." Moreover, there was no discussion or review of the "published statistical information" apparently consulted by defendant's expert. Therefore, the court is unable to gauge and evaluate the reasonableness of and to measure the utility of defendant's expert's market condition adjustments.
Defendant's expert's lot size adjustments bear the same fate. The lot size adjustments offered by defendant's expert were not supported by any objective market data. Defendant's expert's lot size adjustments ranged from negative 20% to negative 10% of the adjusted per square foot price. Each of defendant's expert's appraisal reports for the subject properties state "[b]ased on a review of the data...in terms of lot size...downward adjustments have been applied." However, the data upon which defendant's expert based his adjustments was neither contained in, nor annexed to the appraisal reports, and no insight, interpretation, or analysis of the data was offered during trial. It is wholly unclear from defendant's testimony and appraisal reports whether the data relied upon was from the comparable improved sale transactions contained in his report or other available data sources, and what methods he used to extrapolate the excess land value therefrom.
Adjustments must have a foundation obtained from market derived sources or objective data and not be based on personal observations and/or experience. Here, defendant's expert has failed to provide the "why and wherefore" in support of his adjustments. The weight to be accorded expert testimony relative to adjustments "depends upon the facts and reasoning which form the basis of the opinion. An expert's conclusion can rise no higher than the data providing the foundation." Inmar Associates, supra, 2 N.J. Tax at 66 (citing Passaic v. Gera Mills, 55 N.J. Super. 73 (App. Div. 1959), certif. denied, 30 N.J. 153 (1959)). Thus, without an adequate understanding of the data supporting defendant's expert's adjustments, the court is unable to reach a conclusion on their reasonableness.
Consequently, plaintiffs' expert's reliance on inaccurate and out-of-date information, inability to provide objective and reliable data, in support his adjustments, and failure to adequately investigate the conditions surrounding the comparable improved sale transactions, leads this court to conclude that plaintiffs' expert's concluded opinions of value are unreliable and cannot be afforded any weight. Equally unpersuasive are defendant's expert's adjustments for market conditions, location and lot size, which lack support from market derived sources or objective data. Moreover, the court's exclusion of plaintiffs' expert's location and land-to-building ratio adjustments and defendant's expert's market condition, location and lot size adjustments does not result in a satisfactory resolution, as that would not provide an accurate true market value for the subject properties.
Nonetheless, the court is mindful of its obligation "to apply its own judgment to valuation data submitted by experts in order to arrive at a true value and find an assessment for the years in question." Glen Wall Associates, supra, 99 N.J. at 280 (citing New Cumberland Corp. v. Roselle Borough, 3 N.J. Tax, 345, 353 (Tax 1981)). However, to enable the court to make an independent finding of true value, credible and competent evidence must be adduced in the trial record. Here, the court was presented with inadequate factual information, data and analysis supporting the adjustments to the comparable improved sales. Thus, the court concludes that as a result of the inadequacies in the experts' reports and testimony, the record contains insufficient credible evidence for this court to make an independent determination of the true value of the subject properties by a fair preponderance of the evidence.
Accordingly, the court concludes plaintiffs' have failed to prove, by a fair preponderance of the evidence, that the subject properties assessments exceed their true value. Additionally, the court further concludes that defendant has failed to provide credible and competent evidence establishing the true value of the subject properties. Therefore, the court shall enter judgments dismissing plaintiffs' Complaints in this matter.
Very truly yours,
/s/
Hon. Joshua D. Novin, J.T.C.